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  • rp5528 rp5528 Apr 16, 2012 12:27 PM Flag

    Oil-Field Services See margins Shrink

    From WSJ, 4/16/12:

    Decade-low pricing levels for natural gas are spurring a Great Migration toward oil in the U.S. energy sector—and the shift is causing oil-field service providers some pain.

    The massive redeployment of drilling crews and heavy equipment into oil fields—which are harder to tap than natural-gas reservoirs—is eating into the first-quarter profits of giants Schlumberger Ltd., SLB -1.10%Halliburton Co. HAL -1.51%and Baker Hughes Inc. BHI -1.75%That's a major downshift from two years of unfettered growth during the shale boom—and the transition will likely last through 2012, experts say.

    The U.S. drilling business is becoming an environment "where growth has become more labored," said Bill Herbert, an analyst with Simmons & Co. In the long term, these companies should benefit from oil-directed activity because it requires more of their services, but the costs of working those fields is higher, Mr. Herbert said. The higher operating cost of drilling more oil wells will hit the current bottom line.

    Halliburton, which reports earnings on Wednesday, felt the effects of the migration in the fourth quarter, and expects the pinch to continue. "Part of it's just the logistics of moving all the support materials for that crew," Mark McCollum, Halliburton's chief financial officer, said at a presentation in February. "And then it's just the loss of revenues during that period of time that you've been disrupted."

    The rapid buildup of hydraulic fracturing capacity during the recent boom is also lowering the prices that oil-field service providers can charge for their services. Schlumberger Chief Executive Paal Kibsgaard said that prices were suffering both in natural-gas basins and in oil-rich ones. That, in combination with the migration, "will have an impact on our results both in North America and overall, in this and in the coming quarters," Mr. Kibsgaard said at a conference in March.

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